South Dakota Legislature comes up with economic incentives plan

Feb. 28, 2013

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State revenues match predictions

PIERRE – Economists who work for the South Dakota Legislature and Gov. Dennis Daugaard say state tax collections for the next budget year are expected to be about the same as was predicted when the governor proposed a state budget in December. The economists presented their revenue estimates Thursday to the Legislature’s Joint Appropriations Committee. The committee will use those estimates to determine how much money the state will have to spend next year. After the Appropriations Committee finishes work on the budget bill, the Legislature plans to pass a budget for the year beginning July 1 before the main run of this year’s legislative session ends next week. The governor has proposed a $4.1 billion state budget that includes spending more than $1.3 billion from state general tax collections.

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PIERRE – Saying they’ve come together with a bipartisan compromise, the top Democratic and Republican leaders in the Legislature unveiled a complex economic development package Thursday.

If passed, the deal would set up a new “Building South Dakota” fund, eventually funded with $15 million per year or more, to make investments in a variety of areas, including education, roads and bridges, housing and loans to local businesses.

It also would include an incentive program for large business projects, such as factories or wind farms. If a board determined that a project wouldn’t happen in South Dakota without incentives, they could get a rebate of their sales tax costs once the project was finished.

Leaders in both parties said the package was a compromise, with elements for everyone, even if no one likes all parts of the bill.

“There were certain things we wanted to work on jointly, and come together, and do what’s best for South Dakota and take the politics out of the conversation,” said Sen. Russell Olson, R-Wentworth, the Senate Republican leader. “I think that what you’ll see in the Building South Dakota initiative ... is that bipartisan effort to do what’s right for South Dakota.”

The specific language of the proposal was not available to the public Thursday. But according to legislative leaders, the package includes aid for both big and small businesses, as well as for things seen as creating a good business climate such as education and affordable housing.

“A lot of the development that really matters to us doesn’t occur in (really large projects),” said Sen. Corey Brown, R-Gettysburg. “It’s the smaller things that happen. It’s the things that happen in some of our smaller communities.”

Many parts of the package already have been introduced this year as standalone proposals. Some will proceed as separate bills, while others will be wrapped into a single, combined bill.

That includes education-related proposals, giving support for students learning English and for career and technical education. There also will be a mechanism to redirect money into the state’s general school funding formula.

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“The biggest share of the Building South Dakota fund ... will be directed toward programs in our K-12 schools,” said Rep. Bernie Hunhoff, D-Yankton, the House Democratic leader.

The money for the package would come from two sources.

If a project were approved for incentive payments by the state Board of Economic Development, then any contractor’s excise tax revenue from that project would be deposited into the Building South Dakota fund rather than the state’s general fund. The contractor’s excise tax is applied to construction projects.

Because those incentives are supposed to go only to projects that wouldn’t have come to South Dakota without incentives, lawmakers said they felt comfortable taking that revenue because it wouldn’t have existed without the incentives.

“The goal was to try to find a way to fund (the package) with A, dollars that wouldn’t be here, or B, assets that come from out of state,” Brown said.

The out-of-state dollars are revenue from the state’s Unclaimed Property Fund, which sends millions of dollars to the state every year from abandoned accounts with the national banks in South Dakota.

In 2015, a quarter of the money in the Unclaimed Property Fund each year will go to the Building South Dakota fund. In 2016 and after, half of the unclaimed property will go to Building South Dakota.

That could amount to big money. In the upcoming 2014 budget year, the Unclaimed Property Fund is projected to produce $30 million for the state.

If that continues into the future, Building South Dakota could get more than $15 million per year — about the same level estimated for Gov. Dennis Daugaard’s large project development fund, which voters rejected in the November 2012 election.

Hunhoff said that Democrats weren’t comfortable directing that money away from the general fund, where it could fund education or Medicaid. But he said conversation around the Capitol has Democrats worried the unclaimed property revenue will be taken away from education or Medicaid regardless.

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“They’re talking about how that’s not a dependable source of revenue, how ... maybe we shouldn’t spend it on ongoing programs,” Hunhoff said. “We can all read the writing on the wall. Somebody or somebodies have other designs for how that money ought to be used.”

Redirecting part of that money to the Building South Dakota fund every year, Hunhoff said, could let lawmakers invest it in a program of their choosing.

As the Legislature enters the final week of its 2013 session, legislators plan to have a hearing about the economic development plan at 7:45 a.m. Monday. It will be introduced as an amendment to an existing bill, Senate Bill 235.

“There are some things I like in the bill, some things that are things I wasn’t expecting to see in the bill and are new to me,” Daugaard said Thursday.

With or without the governor, lawmakers are plowing forward. House Republican leader David Lust, R-Rapid City, said the state has “recognized needs and a product that is very solid and will be refined over the next week.”